Reduce Larsen and Toubro Technology Services; target of Rs 4100 HDFC Securities

HDFC Securities' research report on Larsen and Toubro Technology Services

L&T Technology Services (LTTS) posted decent growth and margin performance in Q2 but lowered its FY24E growth guidance from >20% CC earlier to 17.5-18.5% CC. While LTTS’ deal wins have improved, complemented by better margin defence, risks of business cyclicality and weaker working capital cycle (post-SWC) persist. Strong demand continued in the transportation vertical (33% of revenue), although recent macro developments can impact the near-term profile. LTTS’ differentiation as a pure-play ER&D services company lies in its domain capabilities across a diversified vertical base, supplemented by strong industry drivers (medium term), but the growth print may be impacted by a longer deal conversion cycle.

Outlook

LTTS maintained its EBITM outlook of 17% for FY24E and improved it to 18% by H1FY26E, supported by cost optimisation and better operational efficiencies. We believe that risk-reward is unfavourable at 31x FY25E and we maintain REDUCE, with a TP of INR 4,100, based on 25x Sep-25E EPS and a 17% EPS CAGR over FY23- 26E.